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TMI Blog2013 (12) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... riod when the agreement was in force, namely for a period of 10 years it was an exclusive right given to the transferee by the petitioner in respect of a particular store and consequently a transfer of right to use and not merely a licence to use the goods and during the period when the agreement was in force, the petitioner as the transferor could not transfer such goods with particular reference to the exclusive right given in respect of a particular store to any other party. Thus, all the attributes to constitute transfer of right to use the goods have been fulfilled - Right given by the petitioner is undoubtedly a transfer of right to use incorporeal or intangible goods and therefore, exigible to sales-tax - Following decision of BSNL vs. Union of India [2006 (3) TMI 1 - Supreme court] and Sunrise Associates vs. Government of NCT of Delhi & Ors. [2006 (4) TMI 118 - SUPREME COURT of INDIA] - Decided in favour of assessee. - Tax Case (Revision) Nos.29 & 30 of 2011 - - - Dated:- 29-10-2013 - Chitra Venkataraman And T. S. Sivagnanam,JJ. For the Petitioner : Mr. V. Sundareswaran for Mr. K. Venkatasubramanian For the Respondent : Mr. Aditya Reddy Government Advocate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.29 of 2011. 4.For the assessment year 2004-05 under TNGST Act, the petitioner was assessed on a total, taxable and resale turnover of ₹ 65,25,872/-, ₹ 6,32,477/- and ₹ 31,00,745/- respectively and levied tax at 4% on the turnover relating to Franchise Commission to the tune of ₹ 5,81,477/- and at 12% on the sales turnover of ₹ 51,000/- relating to a motor vehicle apart from imposing penalty under Section 12(3)(b) of the TNGST Act. On an appeal filed before the First Appellate Authority, the appeal was partly dismissed and aggrieved by that portion of the order, the petitioner filed appeal before the Tribunal, which was dismissed by the common order dated 18.10.2010, against which T.C.(R) No.30 of 2011 has been filed before this Court. 5.The petitioner entered into an agreement dated 27.09.2002, with M/s.Rajalakshmi Departmental Stores described as 'Franchisee' stating that they are engaged in business of Operating and Franchising a distinctive style of supermarket under the name of VITAN A/c Supermarket and that they have developed a business plan and method in connection with the operation of supermarket providing general merchandise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'goods' within the meaning of TNGST Act. It was further stated that the Assessing Authority as well as the First Appellate Authority failed to properly appreciate the conditions in the agreement which clearly indicate that there was no sale of trade mark or goodwill. 7.The Assessing Authority as well as the First Appellate Authority held that on a reading of the various clauses in the agreement, it clearly indicates that the dealers transferred their trade name and goodwill which are intangible goods falling under item No.46 of Part B of I Schedule to TNGST and taxable at 4%. The Tribunal while examining the correctness of such finding, pointed out that this Court in the case of S.P.S.Jayam and Co., Vs.Registrar Tamil Nadu Taxation Special Tribunal and others reported in [2004] 135 STC 117 (Madras) upheld the levy of tax on transfer of trade mark and a trade mark is a property right, intangible or incorporeal goods and would fall within the definition of 'goods' as defined under Section 2(j) of the TNGST Act. The Tribunal after referring to the various decisions of the Hon'ble Supreme Court upholding the validity of the levy of service tax on varied services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 2006 145 STC 91(SC), have not been fulfilled for bringing the transaction amenable to the TNGST Act. Contentions of the Revenue:- 9. Mr.Aditya Reddy, learned Government Advocate appearing for the Revenue, by referring to the various clauses in the agreement more particularly Clause XIV which deals with 'termination', submitted that this clause gives a clear indication as regards the rights transferred by the petitioner and the rights so transferred are right to use intangible property including the trade mark. It is further submitted that the decision of the Hon'ble Supreme Court in the case of 20th Century Finance Corporation (supra), cannot be made applicable to the facts on hand and the contentions raised by the petitioner have been answered by the Division Bench of this Court in SPS Jayam Co., vs. Registrar Tamil Nadu Taxation Special Tribunal Ors., reported in [2004] 137 STC 117 (Mad). It is submitted that the decision in Malabar Gold Private Limited (Supra) is not applicable to the case on hand as it applies the test of dominant interest. Similarly, the subject matter in the case of Yasha Oversees (Supra) deals with REP Licences which have intrinsic v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition of goods and does not satisfy the tests laid down by the Hon'ble Supreme Court in the case of BSNL (supra). 15.Resisting the contention of the petitioner/assessee, learned Government Advocate appearing for the Revenue would contend that the decision in the case of Sunrise Associates (supra) has no application to the facts of this case and the issue raised in these cases was squarely covered by the decision of the Division Bench of this Court in the case of S.P.S.Jayam Co., (supra) where the Division Bench held that the transfer of a right to use a trade mark was goods and liable to levy of sales tax. It is further contended that right given by the petitioner is a right to use an intangible property and would fall within the definition of goods and such transfer would fall within the ambit of sale as defined under Section 2 (n) of the Act. 16.It is further contended that the decision of the Division Bench of the Kerala High Court in the case of Malabar Gold Private Limited (supra) has absolutely no application to the facts on hand as in the said case, it was factually found that the franchisor retained the right, effective control and possession and it was not a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods and (iii) valuable consideration and absence of any one of these requirements would mean that the transaction would not be sale and would not even be a deemed sale. Following the Constitutional amendment, the States including the State of Tamil Nadu, amended the TNGST Act and incorporated new definition of goods in Section 2(j) and sale in Section 2(n). In terms of new definition of 'goods', means all kinds of movable property (other than newspapers, actionable claims, stocks and shares and securities) and includes all materials, commodities and articles (including those to be used in the fitting out improvement or repair of moveable property); and all growing crops, grass or things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale; Section 2(n) defines 'sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable considerations. 21.The Hon'ble Supreme Court pointed out that these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a contract is an actionable claim and assignable under Section 130 of the Transfer of Property Act. On the above findings, the Constitution Bench held that sale of lottery ticket does not necessarily involve the sale of goods. 24. In the case of M/s.Yasha Overseas (supra) the question which fell for consideration was whether the decision of the Hon'ble Supreme Court in Vikas Sales Corporation holding that the transfer/sale of a REP licence was exigible to sales-tax, stands impliedly overruled by the Constitution Bench decision in Sunrise Associates(supra). After analyzing the decision in the case of Vikas Sales Corporation, the Hon'ble Supreme Court held that the REP licence and DEPB have an intrinsic value that makes it a marketable commodity and qualifies within the meaning of the Sales Tax Act and its sale is exigible to tax. 25.In the preceding paragraphs of this Order, we have referred to the nature of transaction between the petitioner and the third party. The agreement dated 27.09.2002, has to be considered to ascertain as to whether the nature of transaction is an actionable claim. For better appreciation, the relevant conditions of the agreement are quoted h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the stores. c) Supplies:- For all supplies from VITAN, the terms of payments will be cash carry . For other suppliers, the Franchisee will pay on a timely basis as per terms agreed with the supplier. Franchisee is aware that failure to make prompt payment to its suppliers may cause irreparable harm to the reputation of VITAN and other Franchisees, profitability of Franchisee. d) Apart from the above, the Franchisee shall bear all running expenses of the stores like monthly rent of ₹ 25000/- for the premises, Energy Charges, Staff Salary and Security, Maintenance of equipment and other direct5 expenses for the running the stores. The monthly rent of ₹ 25000/- shall be paid by the Franchisee to the owner of the premises direct. The monthly rent is subject to increase time to time and shall be paid as fixed by the landlord. The Franchisee shall not be liable to pay any dues payable by Vitan Departmental Stores Industries Ltd., for the purchase made by them for their various branches and for the services rendered to them by any organisation prior to 25.09.2002. All such liabilities are the responsibility of VITAN and such liabilities shall be settle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defaults are not cured in such 30 days period. Termination cannot be on any other ground other than mentioned above. Upon termination of this Agreement for any reason or upon expiration of the term thereof, Franchisee agrees as follows: 1.To any immediately to VITAN the full amount of all sums due under this Agreement. 2.To hand over the furnished store in good working condition with or without merchandise as to be decided by the franchiser. 3.To cease immediately to hold itself out in any way as a Franchisee of VITAN or to do anything which would indicate relationship between it and VITAN except to the extent permitted in this Agreement. However, the Franchisee can terminate this agreement during the duration of 10 years by giving 3 months notice and paying a compensation equivalent to one month Franchisee fees for every balance year of lease period. The last month Franchisee fees will be basis of this calculation. 26.On a perusal of the above conditions, it is evidently clear that the petitioner has transferred the right to use VITAN system, the licensed right of their names, marks, systems, insignia, symbols and goodwill. The Hon'ble Supreme Court in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to use the goods under Article 366(29-A) and the tests required to satisfy the same as laid down by the Hon'ble Supreme Court in BSNL are not satisfied. On examining the conditions contained in the franchise agreement, the Division Bench held that the agreement will show that the company retained effective control and merely because there is an agreement by way of franchise agreement enabling the franchisees to use the trade mark on the products of the Company, it cannot be said that the franchisees have got effective control of the trade mark. It was further pointed out that even while the franchise agreement with one is in force, the Company can use the trade mark on their own and can enter into franchise agreement with other parties and during the said period, the effective control is with the company. In the light of the nature of the transaction, the Kerala High Court observed that the attributes laid down by the Hon'ble Supreme Court in the case of BSNL were not satisfied. 29.We have perused the conditions of the agreement, dated 27.09.2002 entered into by the petitioner from which we find that the petitioner has transferred their right to use their trade mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that transfer of trade mark is a sale of incorporeal goods for consideration and therefore, taxable under the TNGST Act. Aggrieved by such order, the assessee preferred an appeal before the State Taxation Tribunal which dismissed his appeal and the assessee filed a writ petition before this Court challenging the order of the Tribunal. It was contended before this Court that the agency was given a mere right to enjoy the trade mark for a period and the amount received was only towards royalty and hence, should have been exempted while calculating the turnover. The Revenue submitted that the transaction is a sale of incorporeal goods. The Division Bench after referring to various clauses in the agreement between the parties therein took note of the decision of the Hon'ble Supreme Court in the cases of Rashtriya Ispat Nigam Ltd., Vs.Commercial Tax Officer, reported in 77 Sales Tax Cases 182; Vikas Sales Corporation and another Vs. Commissioner of Commercial Taxes and another, reported in 102 STC 106, Commissioner of Sales Tax Vs. Duke Sons; Aggarwal Brothers Vs.State of Haryana, reported in 113 STC 317; 20th Century Finance Corporation Limited Vs. State of Maharashtra and held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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